Years after President Obama left office, the Affordable Care Act remains one of the most controversial pieces of legislation from the former president's administration. Those who favor the measure point to the millions of Americans who've gotten healthcare coverage as a result of Obamacare, while opponents look at rising premiums and a greater reluctance among some health insurance companies to participate in government health coverage marketplaces as evidence that the program isn't working from a policy perspective.
Efforts in Washington to repeal Obamacare haven't yet come to fruition, and with Democrats now holding control of the House of Representatives, future efforts to get rid of the entire healthcare law look to be on hold indefinitely. However, the late-2017 tax-reform law did succeed in starting the clock toward eliminating one of the most-hated aspects of Obamacare. The individual mandate officially went away as of Jan. 1, 2019, and so you won't face an Obamacare penalty when you file your returns for your 2019 taxes early next year. That means that once you file your 2018 tax return in the next few months, you shouldn't see individual mandate penalties again.
How Obamacare penalties got to be such a big deal
The penalty for not having qualifying coverage under the Affordable Care Act started out relatively small, as a way of giving participants time to get used to the measure. In their first year during 2014, penalties were limited to $95 per adult plus $47.50 per child with a family maximum of $285, although an alternative method could lead to bigger penalties if looking at 1% of income above the threshold for filing a tax return produced a higher number.
Those penalties quickly multiplied. In the second year, the limits more than tripled to $325 per adult, $162.50 per child, and $975 per family, with the alternative using 2% of income rather than 1%. By 2016, penalties had hit their maximum levels of $695 per adult, $347.50 per child, and a maximum of $2,085 per family, with the alternative calculation using 2.5% of income. That's where the limits have remained in subsequent years.
How tax reform took away the penalty -- and when
Despite the failure of previous efforts to repeal Obamacare entirely, the tax-reform law added a provision that specifically addressed the individual mandate. Rather than taking out the penalty rules entirely, tax reform changed the $695, $347.50, $2,085, and 2.5% amounts to $0 and 0%. Technically, the healthcare law still requires you to have minimum essential coverage as defined, but there are no longer any financial consequences for not complying with the requirement.
Most of tax reform's provisions took effect at the beginning of 2018, including new tax rates and brackets as well as key changes to the standard deduction. However, the change for Obamacare penalty provisions only took effect as of the beginning of 2019.
Therefore, you could still face one more round of Obamacare penalties. When you file your 2018 tax return, there'll be spots on your 1040 form for you to calculate and include any penalty amount. You'd then have to pay it on top of your regular tax liability.
A way to avoid 2018 Obamacare penalties?
Even if you didn't have qualifying coverage in 2018, however, you still might not have to pay one final round of Obamacare penalties. That's because the Trump administration has made it dramatically easier to claim a hardship exemption.
According to the government's Healthcare.gov website:
- You don't have to fill out an application to get a hardship exemption.
- You don't have to submit documentation to substantiate your right to a hardship exemption.
- All you have to do is claim the exemption on your 2018 federal tax return.
That doesn't mean that a hardship exemption is automatic. You still have to comply with the rules, and claiming a false exemption would potentially leave you subject to audit and possibly claims of fraud if you did so intentionally. However, the administration has made it relatively clear that enforcing the penalties isn't a high priority.
One last time
Regardless of what you decide to do for the 2018 tax year, the Obamacare penalty has started to ride off into the sunset for 2019. With the rest of the Affordable Care Act still in place but with people no longer being compelled to have qualifying coverage if they don't want it, some will see the new state of affairs as the best of both worlds.